risk frontiers—southern africa 2015—botswana
DESCRIPTION
Risk Frontiers—Southern Africa 2015—Botswana, conference reportTRANSCRIPT
[gaborone]—Risk manageRs have a unique opportunity to become risk leaders and guide their organisations into successful futures, according to Julia graham, President of the Federation of european Risk management associations (Ferma).
speaking at the first Risk Frontiers—southern africa one day seminar, organised by Commercial Risk Africa, she said company boards have increasing responsibilities across the world and there is an opportunity for risk managers to help support them using their knowledge and experience. ms graham said: “To connect people across the organisation, risk managers need integrity and strong values. Risk managers have to be credible and to be able to show the organisation and stakeholders that you know your business.”
chance to add vaLueshe believed there are plenty of opportunities for risk managers to show off their expertise and to add value to organisations but she said, the need for professional recognition was essential to evidence that value.
“We want to call ourselves professionals,” she said “and to do that we must have a career path supported by the evidence provided by exams along the way to ensure we are meeting those professional standards.”
Ferma will soon be launching a certification for its members, based on four pillars.
she explained that these will include the risk managers’ knowledge, experience, a programme of continuous professional development and adherence to a Code of ethics.
“Professions typically have this type of structure,” she stressed, “whether it be doctors or accountants, for example. We are trying to talk to people about professionalism.”
Certification has three component
parts: certification for risk managers based on their level of knowledge and experience coupled with successful completion of an examination, accreditation for bodies providing further education, including risk management and insurance education, and continuous professional development (CPD) which ensures knowledge and experience are maintained to defined levels. accreditation is about making sure that the organisation which you get further education from is credible. Organisations which provide CPD, including Ferma member associations, will be licenced to an agreed standard.”
Ferma will be launching a two tier route to certification. The first stage will be for those people newer to risk management. advanced certification will “take it to the next level”, according to ms graham. There will be choices along the advanced route. For example, as part of the advanced certification, professionals will be able to choose between insurable risk, enterprise and strategic risk management and financial risk management. “not everyone will take exactly the same path and it is important that we acknowledge that and reflect it in certification,” said ms graham. “in large organisations these roles can be quite separate while in smaller organisations one person may perform all these roles. Our certification will cater to all. The key is that our certification is developed by risk managers for risk managers,” she concluded”.
That same message came from gillian le Cordeur, Chief executive Officer of the institute of Risk management south
africa (irmsa), who spoke of the success of the first sitting of its board exams last month.
she described development of its qualifications as an exciting journey, saying the key had been working together to produce a credible and valued certification process. irmsa also has a two tier qualification, combining knowledge and experience.
she explained irmsa was registered as a professional body in 2012 as part of a drive to encourage higher education and raise standards. “We needed to ensure standards spoke to what we were doing,” she said.
ms le Cordeur said: “most risk managers are more likely to have come from audit or maybe the legal side of the business and have fallen into risk management. We need to make sure the journey towards risk management qualifications is valid and worthwhile.”
high standardsBoth organisations place emphasis on continuous professional development (CPD), saying risk managers will need to continually maintain their standards much as other professions demand.
Ways in which CPD is maintained continue to be developed but the need to keep abreast of change was highlighted through the day’s seminar with speakers pointing to existing and potential challenges. They said risk managers need to show their value to organisations and, while passing the exams was a vital part of that, CPD was an equally important part of evidencing risk manager’s credibility to their senior managers.
ms le Cordeur explained that irmsa will be launching its second stage exam later this year, following the successful launch of the stage 1 exam in June. “We are aiming for about a 60% pass rate. it was important that the exams are a true test of knowledge but it has also been important to reflect the many ways people came into the sector, their education and their experience. We need to be as inclusive as possible while maintaining the right standards.”
CRA EVENTS IN AFRICA —Watch this space!— as part of its programme of seminars across the continent, Commerical Risk Africa will be staging an event in Lagos, nigeria
Time for risk managersto take a definitive lead
gareth [email protected]
[gaborone]—the risk and insurance communities have a key role to play in addressing environmental and social challenges across Sub Saharan Africa, according to a keynote address by a United Nations (UN) representative at the annual Risk Frontiers Southern Africa conference, held on 23 July, 2015 at the Cresta Lodge in Gaborone, Botswana.
Butch Bacani, Programme Leader, UN Environment Programme Financial Initiative (UNEP FI) for Sustainable Insurance, started his presentation by providing context for the UN’s participation in the risk management discussion. “We believe that the insurance industry [including risk managers] has a key role to play in addressing many of the environmental and social challenges that the world is facing today and into the future,” he said.
The insurance industry is the cornerstone of the global economy, acting both as a shock absorber when unfortunate events and losses occur and as an investor with assets under management totalling approximately $30tn globally. “The ‘investor’ role of the insurance industry is extremely relevant in terms of driving the global
development agenda,” said Mr Bacani.The key risks facing the global
insurance and risk management disciplines today include political risk, cyber risk and the risk posed by technological innovation alongside issues such as climate change, natural hazards and access to insurance.
“Our goal is for a framework that articulates the role of the insurance industry in sustainable economic, environmental and social development,” said Mr Bacani. This vision of a risk-aware world where the insurance industry better understands the magnitude and complexity of the global risk landscape culminated in the UNEP FI Principles for Sustainable Insurance (PSI).
The PSI programme was launched at the UN Conference on Sustainable Development (held in Brazil in June 2012) and is recognised as the largest collaborative initiative between the UN and insurance industry on sustainable development.
Mr Bacani observed insurer behaviour since the introduction of PSI confirms a widespread acceptance of its content. “Swiss Re was the first firm to come out publicly with a sustainability risk management framework looking at how its insurance, reinsurance and investment
Insurers and risk managers crucial to UN’s 2030 sustainable development plans
un2030: Turn to page 3
AfricAn risk & insurAnce MAnAgeMent news
A REFINED READ
Julia Graham
ButchBacani
NEWS2 COMMENT
P olitical risk, credit risk, knowing your customer, cyber risk and the risk of not having the right people in the right
place at the right time were all on a packed agenda when Commercial Risk Africa held a one-day seminar for southern african risk managers in Botswana last week.
While there was a lot on the agenda, the day provided a true snapshot of the many issues facing risk managers today. Whether it is an external macro influence such as recession in the west, a local issue of a skills gap, or an emerging risk such as cyber, risk managers are expected to be able to properly brief their senior managers.
and while keeping on top of the current issues, another expectation is risk managers will be able to spend time thinking ahead and warning of potential difficulties on the horizon. no wonder then that risk managers are so busy but also that there is a strong need for training, education and a certified career path to follow.
Thinking ahead was the message from Butch Bacani, who outlined the very real prospects of a planet in crisis. his was a positive message, however, pointing out how much of a role risk managers can and should have in encouraging best practices throughout their organisation and suggesting while individuals may struggle to make a difference, coming together as a collective can have a major impact.
Working together was also the theme emerging from Tanzanian insurance commissioner israel kamuzora, who outlined the challenging role that regulators across africa must play in balancing the needs of insureds against the ability of the insurance market to operate and innovate.
advocating cohesion at a local, regional and even continental level, mr kamuzora suggested african markets need to carefully balance regulation
if they are to compete in a global marketplace.The idea that africa should be considered on
some kind of second tier basis was roundly rejected by the panellists who all agreed that, although africa should not be taken as a whole, the continent cannot succeed without competing at the same level as other parts of the world.
There are, of course, some challenges in meeting those standards and some problems are uniquely african. so, understanding more of the political risks and who you are in business with remain key issues for all risk managers. Cyber risk, however, is one of those truly global challenges. it does not matter where the crime originates from, everyone is at risk and there were clear warnings for anyone who chooses to bury their head in the sand.
so no wonder there is such a need for continuous professional development (CPD) to help risk managers keep abreast of changes. Both the institute of Risk management south africa and the Federation of european Risk management associations have put CPD firmly onto the agenda and have included it as an ongoing requirement of their new qualifications.
Clearly it will never be enough to pass a single exam if risk managers are to deliver true value to their organisations.
all that remains now is for me to give an enormous thank you to all our speakers from both near and far our sponsors, without which the event would not have ben possible, and also to thank the risk managers who attended and made our first southern african event such a success.
i hope you all enjoy the read and that we will see more of you at our events later this year in either London, Lagos or nairobi.
liz Bootheditor
Commercial Risk Africa
stronger together
The more complex the challenge, the more important
it is to choose the right insurance partner.That’s why more than half of the Fortune Global 500® companies have chosen Allianz Global Corporate & Specialty
as their trusted partner. Our office in Johannesburg is part of the global Allianz network in more than 150 countries.
Speak to one of our experts to discover the difference the right partner can make: +27.11.214.7900
www.agcs.allianz.com
Billie Mcternan & Liz [email protected][LagoS & LonDon]—Risk manageRs aCROss africa are increasingly concerned by growing political risks across the sub saharan region.
Commercial Risk Africa has been asking risk managers across the region for their views on a range of risks. Political risks appear to have remained at the top of their list of concerns, with less than 10% of those responding saying the risk has not changed in the past year or has decreased.Political risks include a number of
areas, including the risk of politically-motivated violence and riots, foreign exchange rates, sanctions and regu-latory risks.
however, risk managers say uncertainty caused by forthcoming elections or the risk of governmental change is the main cause for concern. Uncertainty is impacting the willing-ness of foreign investors to commit to certain countries they say.Political risk also includes the risk of
corruption, with risk managers in nigeria, kenya and south africa all citing corruption as an ongoing risk to their businesses. not only is it impacting the daily operations but also the appetite of investors. in south africa, Terry Booysen, executive Director, CgF Research institute, put political uncertainty and instability at the top of his list of risks, while nico snyman, Chief executive Offi cer of Crest advisory africa, stressed that the problem starts at the top.fraud factorin kenya, agnes mbaire, responsible
for internal audit, Risk management and Compliance at Postbank, said fraud risk remains a major challenge for risk managers operating in kenya, with Joan kirika, head of Risk management at the insurance Regulatory authority, adding that it remains a culture problem.gilbert mwalili, Risk manager at
Protecht, also put political risks at the top of his concerns. “in business, people are very quickly affected by political instability. People will react in different ways. One organisation may see it as zero risk, while others see it as a major risk.
“The problem is that political risk is so broad.”
Peter mulwa kioko, Risk manager at east african Breweries, added: “Political dynamics can change so quickly and it is that unpredictability that causes the risk. it can create uncertainty around regulation or the fi scal framework.”in nigeria, risk managers admit
to nervousness around the impending elections. adebayo adebeshin, Risk manager at mTn nigeria, saw political agitations and terrorism as one of his top three concerns and fears political risks are rising fast in the country.The decision in February to postpone
nigeria’s presidential and gubernatorial elections—one week ahead of their scheduled date—did not come as a surprise to many observers and participants. The independent electoral Commission was already behind on the delivery of newly imported permanent voters’ cards but the announcement that the elections were being postponed because of security concerns was unexpected. voters will now go to the polls on 28 march for the presidential vote, and on 11 april for the
governorships. The elections were set to be a
hotly contested race between President goodluck Jonathan’s ruling People’s Democratic Party (PDP) and opposition from ex-military president general muhammadu Buhari of the newly formed all Progressive Congress (aPC). Last year, PDP had suffered fi ve defections from governors who crossed the fl oor to join the aPC—governors of states that could now potentially split votes.
some civil society organisations criticised government for the postponement and urged voters to not be discouraged and exercise their right to vote. Other analysts were concerned that the delay would lead to tension on the ground. Though there have been spurts of violence during the campaign period, the road to the elections has been mainly calm. nigerians are concerned about security and want to see a concerted effort to ensure it for the country.
During mr Jonathan’s tenure, Boko haram has made some of its most horrifi c attacks, from the kidnapping of more than 200 girls from the town of Chibok in Borno state last april to the mass destruction and massacre of some 2,000 people in Baga in January. President Jonathan’s nonchalant response to both events caused a public outcry, leading to protests across the country calling on government to address these threats.
Chief executive of the Lagos-based Financial Derivatives Company, Bismarck Rewane, said the reason government gave
PoLiticaL: Turn to page 2
MARCH 2015www.commercialriskafrica.comINDUSTRY FOCUS—Oil & Gas:Falling prices may already be impacting those producing oil but what are the prospects for those
parts of africa where exploration has only just uncovered deposits worth exploiting? .................... 20–21
COUNTRY REPORT—Nigeria:With an election on the horizon, Nigeria is very much in a holding pattern, with foreign investors biding their time ............14–19Risk managers conclude political
risks top list of concerns for 2015
[LonDon]—suB saharan aFrica cOntinued tO recOrd the largest number of downgrades in the latest political risk
map from Aon for 2015, as economic and political risks increased. However, the picture is mixed across the region,
with improvements in southern African countries offset by
other weaknesses in parts of west Africa.Aon has just unveiled its 2015 Political Risk Map, which portrays political risk in emerging markets. Topping the list of political risks facing emerging market investors is the increasing instability in already fragile oil-producing countries such as Iran, Iraq, Libya, Russia and Venezuela,
as a consequence of the low oil price. The effectiveness of extremist groups in Africa and the Middle East will be amplifi ed in affl icted countries that lack the resilience to absorb economic shocks.The map illustrates that 2015 will be a particularly
challenging year for oil producers in Africa, several of which
already have high or very high country risk ratings. Egypt, Tunisia and Morocco, which should otherwise stand to benefi t from cheaper oil imports, face increased security risks because of power vacuums in Iraq, Libya and Syria.
Matthew Shires, Head of Political Risk at Aon, said: “By using the latest data and analytics, the political risk map helps organisations determine their emerging market investment strategies. Businesses need to constantly monitor their exposure to political risk, such as the impact
of oil price uncertainty and political instability.”Paul Domjan, Managing Director, Roubini Country
Insights, added: “Roubini Global Economics (RGE) is proud to continue its partnership with Aon for its clients. During 2014, political risks in the emerging markets rose, particularly in oil-exporting regions.“The quarterly updates to the risk icon scores and
the country ratings highlight developing risk trends, allowing investors to respond quickly to deterioration and to better hedge their exposure or take advantage of new opportunities. Once again, the map demonstrates the power
of combining RGE’s country analysis and benchmarking with Aon’s expertise in country risk.”Looking at Sub Saharan Africa in more detail, Aon
said the Ebola outbreak exacerbated an already challenging
business environment in the most affl icted countries (Guinea, Liberia and Sierra Leone).The report found: “Institutional quality and risk of
supply chain disruption was already high in these countries
and the epidemic has exacerbated these vulnerabilities and put extreme pressure on local health systems and governments. Although the epidemic seems to have peaked
and been contained to these countries, the damage on institutions will be long-lasting.”Turning to Islamic extremism, Aon said groups such
as Boko Haram and Al-Shabaab will continue to increase political risk in Nigeria and Somalia respectively, as well as
their neighbours Cameroon, Kenya and Uganda.
Oil prices and elections dominate African risks
oiL: Turn to page 2
Commercial Risk AFRICAAfricAn risk & insurAnce MAnAgeMent news
pRice:gBP £25.00UsD $42.50eUR €31.25kes ksh3665ngn n6875ZaR R465
goodluck Jonathan
23 JULY 2015Cresta LoDge, gaBorone, BotsWana
risk frontiersSOUTHERN AFRICAUnderstandingrisk management in
today’s global economy
sponsoreD By:
a one-day conference examining the following key
issues through a mix of presentations and roundtables:
n talent, training and developmentn Cyber risk and insurancen political risk
n regulationn financial risk insurancen Cross-border trade n Counterparty risk
editorLiz Booth
+44 [0] 1263 861 676 [w][email protected]
grouP PuBLishing directorHugo Foster
+44 [0] 7894 718 724 [m][email protected]
senior rePorter east africaSteve Mbogo +254 [0] 722 214 [email protected]
senior rePorter West africa
Billie [email protected]
While every care has been taken in publishing Commercial Risk Africa, neither the publisher nor any of the contributors accept responsibility for any errors it may contain or for any losses howsoever arising from or in reliance upon its contents. Editeur Responsable: Adrian Ladbury.
Rubicon Media Ltd. © 2015All rights reserved. Reproduction or transmission
of any content is prohibited without prior written agreement from the publisher
For commercial opportunities email [email protected]
To subscribe email [email protected]
Commercial Risk Africa is published monthly, except august and december, by Rubicon Media Ltd.—Registered office 7 Granard business centre, bunns Lane, Mill Hill, London nW7 2dQ
RepoRteRS: [email protected] Billie McTernan, Gareth Stokes, Ben Norris, Stuart Collins, Tony Dowding, Nicholas Pratt, Rodrigo Amaral
grouP Managing editor: Adrian Ladbury, +44 [0] 7818 451 882 [m], [email protected] services: Alan Booth, +44 [0] 20 8123 3271 [w], [email protected], www.calixa.biz
[gaborone]—Businesses expanding into africa must be aware of the volatile political environment that exposes them to high political risk, according to Lawrence nazare, group executive Director at Continental Reinsurance.
he said risk managers at inward-facing businesses must remember to factor in the impact of unequal growth and gDP expansion with discriminatory economic and social development, resulting in high youth unemployment and a lack of access to resources.
Other risk concern the potential government fiscal response to global shocks and vulnerabilities as well as its possible response to environmental crises such as droughts and floods.
Food security is also a rising risk, while african countries face economic contagion from recession in the west and the risk of a social media revolution and the recurrence of the arab spring phenomenon.
he said: “afro-optimism prevails but the continent suffers from some deep-seated problems—poverty has been reduced, but it remains pervasive and, despite its almost 800 million citizens, sub saharan africa’s share of global gDP is just 1.1%.
“although the world raves about african growth, economic development and social development challenges, political instability, corruption and political violence are realities that still shape the african political risk environment.”
mr nazare explained political risk may include international wars, economic sanctions, terrorism, government instability, state failure, creeping expropriation, breaches of contract, repatriation restrictions or subtle discrimination
“Certain political events come as a surprise but i would like to surmise that political risk is normally a process rather than a sudden event,” he suggested. “major political changes as a result of major events such as elections, revolts or wars pose political risk but the collective impact of smaller events should not be ignored, for example, corrupt behaviour over time having a major influence on a country’s political stability.”
he also warned political risk has interrelationships, with one form of risk creating other forms—for example, macroeconomic trends influencing political risk on the one hand, and on the other hand political decisions having economic consequences.
“a potential war will have a major influence on an oil-producing company, while the balance of payments situation in a country would have a major impact on risk for a whole industry,” he said, adding: “Within the same industry different firms that are exposed to the same political event or environment can be affected differently because of their specific strategic capabilities and resources, high level government connections or historical advantage.”
mr nazare stressed africa is not a homogenous territory and risk exposures vary widely in different countries. however, he said, there are some distinct features that shape the economic, social and political landscape of many african countries and contribute to higher political risk levels.n Despite positive real growth rates during
the past decade, the economies of many african countries are still underdeveloped and characterised by a weak private sector and heavy reliance on natural resources.
n Despite a growing middle class, many african societies suffer from extreme poverty and poor social development and education levels.
n Despite touting—in principle—multi-party politics, the political landscape of many countries is still shaped by political instability, corruption and weak state institutions, as well as political violence.“key political risk factors to look out for
in africa therefore include those influenced by sluggish economic and social development, corruption, political instability and political violence,” mr nazare said.
“africa has experienced growth with non-inclusive economic development, scant economic diversification, little employment growth and sparse infrastructure development and slow implementation of measures for wealth sharing,” he warned.
a lack of economic development typically results in unstable local currencies, balance of payments and trade deficits, high inflation, high cost of living and social instability, according to mr nazare.
it is not necessarily good news for resource-rich countries either, with mr nazare adding: “The overdependence on resource income in many countries, for example angola, nigeria, Zambia and sudan, makes these economies extremely vulnerable to price changes in one commodity, shocks in the world economy and domestic insecurities.”
—Liz Booth
Political risk remains top business concern
Gareth StokeS on why market and credit risks go hand-in-hand with trusted business relationships
Know thy counterparty[gaborone]—credit is one of the cornerstones of 21st century cross-border trade and the availability of world class credit instruments is vital to facilitate inter-africa trade as well as the export of the continent’s production to non-african markets.
Before a bank issues a letter of credit or guarantee for a trade it must assess counterparty risk, with one popular measure of this risk being credit ratings. “a credit rating is an assessment of the willingness or ability of the counterparty (or issuer) to meet their financial obligations as well as a relative opinion on how likely that company is to default,” says neil gosrani, Director: Financial services Ratings at ratings agency standard & Poor’s.
a credit rating does not provide an indication of investment merit nor is it an absolute measure of default probability. “We cannot say with certainty that Company a is likely to default, but we can say based on our perceptions that Company a is more likely to default compared to Company B, C or D,” he says.
it is difficult to hold a frank discussion on counterparty risk in africa without dwelling on the negative. Jef vincent, Chief Underwriting Officer at aTi, told attendees at the 2015 Risk Frontiers—southern africa conference, held in Botswana last week, credit insurers faced unique challenges in providing solutions to firms conducting trade on the continent.
“The first issue is that global banks—which are important stakeholders in all commercial transactions—are more and more reluctant to take on risk exposures to african banks,” says mr vincent. african banks tend to be small, little known and often have equity of less than $5m and therefore pose huge risks on high value transactions. international banks are also cautious when asked to confirm letters of credit that have been issued by african banks with the result that the costs incurred by both exporter and buyer escalate.
in more recent times large global banks have become even more reluctant to confirm letters of credit with small african banks due to the post-global financial crisis scrutiny of western regulators. They fear the reputation risk of being accused of doing business with banks that are involved in money laundering activities.
Wary of riskCross-border trade is hindered by the absolute lack of reliable information on african companies and country markets. “global exporters selling into africa are reluctant to take on african risk because they do not know the
counterparties and cannot rely on financials,” he says.african companies looking to import goods find it difficult
to secure good credit conditions and are pressed by their suppliers for pre-payment or cash on delivery (COD). These firms have to service exorbitant interest rates—upwards of 17% in kenya—and take on additional ‘carry of trade’ risks.
importers face risks due to the volatility of african currencies too. “if you buy in dollars and are selling in another
currency your survival depends on your ability to absorb ups and downs in currency crosses as well as your capacity to secure hedging facilities, assuming these are available,” says mr vincent.
many of the stumbling blocks to african trade stem from a combination of poor compliance by rogue firms and lax enforcement by governments. “The impact of smuggling in the
informal economy is one such example,” says mr vincent, citing the decline in mobile phone sales suffered by ‘by-the-book’ distributors Lg and samsung following the introduction of a 30% import tariff by the kenyan government.
These manufacturers reported an 80% decline in volumes allegedly due to smugglers moving handsets overland from Dubai, through somalia and into kenya to avoid paying duties. This type of activity makes it difficult for companies that play by the rules to survive. it also becomes difficult for insurers and rating agencies to build such unnatural factors into their ratings models.
Fraud makes it difficult for banks and insurers to extend trading terms or assess counterparty risk too. “half of the claims that aTi has paid on commercial risk in africa have some form
of fraud attached to them,” says mr vincent. he explains that while fraud occurs commonly worldwide, the level and
extent to which it occurs in africa is quite remarkable. Fraud, political risk, corruption and transparency in
tendering processes are all factors that impact on trade terms.
improving the situationit is clear stakeholders in the african insurance and risk management communities need to do more to improve both the risk ratings and terms of trade offered throughout the region. “Ratings agencies look at a mix of qualitative and quantitative factors to include the environment
that companies are operating in, the macroeconomic framework and the political and financial systems in
place in a country market,” says mr gosrani.Factors unique to different industries and peer
comparisons are also important in determining the eventual risk rating. “success hinges on tackling counterparty
and counterparty risk assessments with clear and transparent rules and criteria—what we would like to see is that individuals in any industry can pick up our criteria and apply them to their unique companies and situations and come up with the same results give or take an adjustment here,” he says.
mr vincent says small and emerging companies in africa will struggle to trade profitably in an environment where banks demand up to 200% collateral for letters of credit or other guarantees and where pre-payments and COD dominate trading terms.
“Credit is the grease of any economy and it is our job to add a bit of grease by making africa more transparent, more reliable and more creditworthy,” he concludes.
transactions were involved in key issues and sectors around the world,” he said.
A key requirement of PSI is that insurers avoid transactions that further the systemic abuses of human rights, result in large scale environmental degradation or promote other negative outcomes. AXA is leading the way in this regard following a May 2014 decision to divest from coal to the tune of $500m and triple its investments in green technologies. The AXA chief executive is on record saying climate change poses a real risk to the sustainability of the insurance sector.
Associations can play an important role in imparting PSI on their country markets. “The Brazilian Insurance Confederation encouraged its entire insurance industry to adopt basic principles and targets to better manage environmental and social risk,” said Mr Bacani.
As for risk management game-changers, the presentation singled out a desire by industry stakeholders to spend more on
disaster reduction activities rather than relying on government and insurers to soak up the economic losses that follow.
In Australia natural disasters cost government in the region of $6bn in economic losses each year, with the number projected to grow to at least $20bn due to rapid urbanisation and population growth coupled with the impact of climate change. These amounts exceed those spent on disaster reduction by more than 10 times.
“The Insurance Australia Group realised that its government was allotting funds to post-disaster recovery instead of managing and reducing disaster risk through funding for better zoning, better land use management and better building codes,” said Mr Bacani.
This realisation led to the establishment of an Australian Business Round Table for Disaster Resilience to begin engaging with the Australian government on how it can better manage risk across the country. “If this can happen in Australia why can it not happen in other parts of the world?” asked Mr Bacani.
The global economic impact of natural disaster runs to approximately $200bn each year with most national governments spending far more money on recovery than risk prevention and reduction.
The UN is working with global insurance companies to better understand risk reduction measures that can be applied to devastating natural hazards including cyclones, floods or earthquakes. “Different insurance companies that are fierce competitors in their respective markets have worked with us to better communicate these risks to stakeholders around the world,” he said.
Mr Bacani observed 2015 was a big year for sustainable development: “When we look at sustainable development we cannot only look at government to provide an enabling policy framework—there has to be private sector leadership—but regulatory challenges will have to be tackled.
“Companies across the financial sector have a great deal of potential in terms of financing development, but they are also
un2030: Risk managers crucial for sustainabilityCONTINUED FROM PAGE ONE
subject to financial policy and regulatory frameworks that determine the rules of the game for insurance companies, for banks and for investors,” he said. The UN is therefore investigating solutions to ensure that the policy and regulatory frameworks that govern banks, insurers and investment companies are aligned to sustainable development.
Mr Bacani said the UN had, in consultation with the industry, developed a roadmap for the insurance industry from now until 2030 (a date that ties in with that of the UN’s sustainable development goals). This roadmap identifies
the need to convene an Insurance Network on Sustainable Development, establish a Sustainable Insurance Policy Forum and agree on a set of Insurance Development Goals to tie in with the 17 sustainable development goals that will be adopted by the UN member states in September 2015.
“We must make sure that whether the goal is energy for all, ending poverty, or taking urgent action on climate change, we are able to translate the goals into something relevant from an insurance and risk management context,” concluded Mr Bacani.
NEWS 3Credit | Continued from p1
THE FOUR PRINCIPLESpRinciple 1: We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.pRinciple 2: We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.pRinciple 3: We will work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.pRinciple 4: We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
n Read more about the Principles for Sustainable Insurance (PSI) here: http://www.unepfi.org/psi/commitments
Source: UNEP Financial Initiative
Neil Gosrani
CONFERENCE4 Regulation | Talent | Cyber
[gaborone]—one of the major challenges faced by africa’s insurance regulators is the pace of market developments. in his address to the 2015 Risk Frontiers southern africa confe- rence israel kamuzora, Commissioner of insurance at the Tanzania insurance Regu- latory authority, says regulators are under continuous pressure to approve new insu-rance solutions at breakneck speed or risk being branded as ‘red light’ regulators.
Regulation can be defined in one of two ways. There are those who ascribe to the old school of regulation—‘red light’ regulation—wherein the regulator is seen to prevent companies from ‘running’ with their business plans. and then there is the so-called new school of regulation—‘green light’ regulation—which frees up the market to allow firms to drive to their respective business goals at the fastest pace possible.
good reguLationin practice, regulators apply a mix of ‘red light’ and ‘green light’ regulation to tie in with prevailing market conditions. according to mr kamuzora the acid test for any regulator is to apply the following five characteristics of good regulation.
“The first characteristic of a good regulator is that its actions or regulatory regime be supported by legislative authority by, for example, each type of regulation
resulting from an act of Parliament,” he says. The second is accountability. The market should hold the regulator accountable for its actions because good regulation cannot exist without such oversight.
“Risk management provides insights into what might come in the future and helps boards to understand whether or not a business is on track—so it is important that the regulator acts with appropriate expertise,” says mr kamuzora, elaborating on the third feature of good regulation. in this regard the regulator’s office must be appropriately resourced to interrogate every aspect of the industry that it regulates.
fair & oPenCharacteristics four and five are that regulatory procedures must be fair, accessible and open and that the regulatory regime must be efficient. a ‘red light’ regulator cannot, for example, stymie a new entrant to a country market by making it wait four or more years for a licence.
“Bad regulation is characterised by red tape, regulatory overload and the bureaucratisation of economic and social life and is looked upon with disfavour by the benchmarking exercises such as the World Bank global Competitiveness survey,” says mr kamuzora. These negative traits can be difficult to avoid as regulators around the globe are seldom free from political influence.
“as regulators we have to make decisions that are in the best interest of the market and then be prepared to stand by
these decisions, safe in the knowledge that the law and systems will back us up,” he says.
Today’s regulators ply their trade in a world where risks and social and economic problems are controlled by networks of regulators and the challenge to achieve a better regulatory environment hinges on a cohesive approach across these stakeholders. For example, when operators started distributing insurance over the mobile phone network there were three or four regulators in play, each with varying power.
Thus for an insurance regulator to approve a product sold by a mobile
company it must also consider the governor of the central bank (re payment systems) and the regulator of mobile phone companies. “To navigate this mix of state controls with quasi-regulatory influences and constraints makes it extremely difficult for us to operate as ‘green light’ regulators and put in place policies at the speed the market desires,” says mr kamuzora.
sPeed BuMPsin the near term insurance regulators will have to meet myriad challenges head on. Top among these is the fact that new risks are coming to market with increasing speed. “Firms will arrive at our office and expect
us to approve a new cyber liability policy at the drop of a hat without considering that they are asking us to approve something that we know very little about—and if we fail to approve it quickly enough we are tarred as ‘red light’ regulators,” he says.
The changing frontiers of regulatory regimes due to the emergence of technology-linked innovation is also cause for concern. Regulators are often on the back foot as their offices do not necessarily have the knowledge, experience and expertise to identify risks and provide control procedures in this space. another major challenge for african insurance regulators is the pressure placed on them by large insurers and reinsurers to consider methodologies that work in their home markets but may not necessarily be a best fit in the country they are entering.
in conclusion, mr kamuzora observes regulation is necessary for the functioning of the market economy and even more necessary when it comes to insurance business. “The main challenge faced by african insurance regulators is how to prepare for the increased speed of market development,” he says. To succeed regulators will have to create a single regulatory space wherein a cluster of regulatory issues, decisions and policies can be considered.
a quick look at developed world markets where regulators are backed by political will, appropriate skills and adequate capacity suggest that africa’s insurance regulators will have to ‘run’ fast to catch up with the rest of the world.
Africa’s insurance regulators must cope with the increased speed of market development
[gaborone]—the riSk poSed to firms due to scarcity of talent and inadequate skills development remains top-of-mind among african risk practitioners. David harpur, chief executive Officer of the insurance institute of south africa (iisa), said the shortage of suitable insurance candidates for further development in insurance is an indictment on the education systems across a region where birth rates are high and the youth makes up the majority of populations.
comments at the 2015
Risk Frontiers southern africa conference suggest industry associations and accreditation institutes have an important role to play in attracting young talent to the risk management profession as well as training new entrants and existing staff for advancement and leadership positions.
“the insurance industry offers tremendous career opportunities to those who are prepared to put in the effort to develop themselves through study,” said Mr harpur. the iisa—which administers the iisa Licentiate, associate
and Fellow short-term insurance designations—is just one of the organisations hard at work to improve standards in the insurance and risk management sectors.
“We are part of a great industry that wants to call itself a profession, but we cannot be a profession unless we are academically qualified,” Mr harpur added. While south africa’s regulators are encouraging professionalism in financial services with the introduction of compulsory regulatory examinations in the advice space, real progress in this regard stems from industry-
led initiatives in the certification (and therefore professionalism) of practising risk managers.
Risk management institutes such as the Federation of european Risk Management associations the institute of Risk Management south africa (irmsa) and the UK’s institute of Risk Management are working together to ensure that their accreditation and certification programmes deliver similar outcomes. “in the process of benchmarking our qualifications with other institutes around the world we are leading
the way in setting the standards for tomorrow’s risk management professionals,” concluded Gillian le cordeur, chief executive Officer of irmsa.
in his parting words to the 2015 conference, Mr harpur singled out the challenge for stakeholders throughout the insurance and risk management industries as one of developing, documenting and implementing plans to attract new talent—and maximising the massive job creation opportunities that the broader financial services sector offers.
Risks around a lack of talent continue to worry risk managers having the right person in the right job at the right time is a juggling act for
businesses across africa, Gareth StokeS reports on how the risk is evolving
gareth [email protected]
[gaborone]—two days Before the 2015 Risk Frontiers southern africa Conference news broke of the ‘hack’ of the online infidelity website, ashley madison. The hackers acquired data from 37 million individual accounts including names, credit card details and the sordid fantasies of many of the site’s users.
a Big deaL“ashley madison is facing one of the greatest fears of any company operating online and their insurer could not even begin to quantify the risks due to this data compromise,” says Beza Belayneh, managing Director at the african Cyber Risk institute.
in the ashley madison case the hackers demanded that the website be taken down, failing which they would make the details they had obtained from it public. Their actions, like the actions of hackers in other widely-publicised cyber-attacks, introduce unprecedented risks for today’s risk practitioners.
most of these attacks involve unimaginable numbers. For example, in 2014, eBay’s 145 million users’ usernames and passwords were compromised while Us-based home Depot suffered an attack that saw 53 million customer email addresses being stolen.
Jonathan healey, Divisional executive: FinPRO Pi at marsh south africa says that there are two broad churches of firms facing cyber risk. “either you are a business that is providing a technology service or you are a business that is quite reliant on
technology services,” he says.many of the risks posed in the provision
or consumption of information technology services can be covered via traditional public liability, professional indemnity and business interruption policies. But cyber
risk creates potential liabilities or gaps that traditional insurance covers do not address.
“Threats around cyber are significant whether they stem from criminal activity, where hackers deliberately gain access to your system or are due to so-called ‘hacktivists’ who gain access to your information to derive leverage for their own ends,” says mr. healey.
There is also an alarming trend of terrorist groups launching cyber-attacks either to secure funds or to broadcast their contentious messages. experts warn the liability that arises following such breaches may fall foul of the terrorism exclusions on traditional liability covers.
mr Belayneh notes few companies are safe from the threat of cyber-attack. “The 6 July, 2015 was a tragic day for cyber security experts,” he says. On this day a
group known as the hacking Team—which sells spyware to governments around the world—was itself hacked. a massive 400gB of client data was ‘stolen’ and subsequently made public via the website WikiLeaks.
‘no secrets’“We are conducting business in a world that has no secrets, where there is no confidentiality, no privacy and where whatever you send by email today will survive indefinitely,” he says. experts in insurance and risk manage-ment agree—firms must accept hacking, cyber-attack and cybercrime are now firmly entrenched in the business risk environment. and determining how and for how much cyber risk should be insured will dominate industry debates for years to come.
Risk practitioners ‘in dark’ when quantifying cyber liability following data breaches
Israel Kamuzora
Jonathan Healey
events: autumn/winter 2015Risk Frontiers—LondonGrange City Hotel, London, UK29 October
Risk Frontiers—East AfricaWindsor Golf Hotel & Country
Club, Nairobi, Kenya13 November
Risk Frontiers—West Africa eko Hotel, Lagos, Nigeria3 December13 Nov/3 Dec events free to attend
This one-day UK-based event identifi es the main risks faced by international companies and investors in Sub Saharan Africa.
Topics under the spotlight will be:
With Africa’s rapid growth comes risk of all sorts—political, fi nancial, legal, social and, of course, physical—and this risk needs to be managed if companies and individuals
across the region are to derive maximum benefi t from this growth.Sessions include:
■Macro economic outlook & risk landscape
■Political risk & terrorism
■Infrastructure risk management
■Catastrophe risk ■Regulation & trade
credit insurance
■Macro economic overview of insurance market in region
■Talent, training & development■Cyber risk and insurance
■Political risk■Risk regulation■Financial risk insurance ■Moving towards certification
*Standard delegate rate £299
Understanding risk management in
Key current issues examined • international speakers • topical
workshops • networking • knowledge
For more information/to book your space: www.commercialriskafrica.com/events
FREEto attend
For risk
Managers*
WorkshoP 1: counterParty risk
Knowing your customer is key to avoiding potential pitfalls and managing risks, however risk managers say information is still not readily available.
alex aquereburu, Chief Risk Officer at Continental Re, who moderated a workshop on counterparty risk, said those around the table had concerns about the lack of information and also the quality of available information.
“most of us still have issues with ‘knowing your customer’ and it is something that is getting more important as the world becomes increasingly interconnected,” he said. “Counterparty risks are often measured through guidelines but whether they are adequate is another question.
“it is not just a private sector issue but it is also important for the public sector too.”
mr aquereburu said delegates agreed “there is definitely a need to be more pre-emptive”. he added: “some organisations do some sort of analysis but it is often for their private use rather than publicly available, making it difficult for others to access the right information.”
he also said there is a need to interrogate information supplied by others to ensure its authenticity.
WorkshoP 2: erM Best Practice
The Benefits of risk management are not always tangible and it can be difficult to evidence value to senior management, according to delegates
attending the workshop on enterprise risk management.
moderated by Laura mallabone, of satarla Risk management, the group discussed the benefits of using risk management frameworks and the pros and cons of isO 31000 and COsO.
ms mallabone said: “There was a general feeling that there is a shortage of experience in
risk management and that impacts on the ability of the risk managers to get processes implemented across organisations.
“Too often the role of the risk manager is completely underestimated within the organisation and sometimes there are real obstacles to the implementation of good risk management as a result.”
she said there is a firm belief risk managers needed to look both internally and externally as well as understanding the special needs of their industry sector if they are to succeed as an enterprise risk manager.
Despite the current hurdles, she concluded: “There is a belief that risk managers will have a key role in organisations going forward. it will almost be a condition for operating licences. We will have more responsibility and a much bigger role.”
WorkshoP 3: cyBer risk and insurance
The challenge of quantifying risk and identifying the maximum available cover from the insurance markets topped the agenda in the workshop on cyber risk.
moderated by Beza Belayneh, managing Director of the african Cyber Risk institute, and gezahegn Dugassa, Director of awash Bank, the workshop looked at the potential impact of a cyber attack.
mr Belayneh said: “Cyber risk is like an intelligent hurricane. if you look at a hurricane, it passes overhead and destroys everything in its path. a cyber attack is the same, it destroys everything in its path, but it is intelligent because it passes back over to make sure everything is destroyed and, if not, will destroy it then.”
The challenge, the workshop agreed, was in quantifying the risk and then finding the right level of cover. There was agreement that not everything can be insured and neither can everything be mitigated against.
“The best you can hope for is to reduce your risks, insure what you can but importantly to prepare yourself,” stressed mr Belayneh.
mr Dugassa agreed, adding: “Whenever you face a risk, we tend to spend time on pre-emptive measures and on detection but often we don’t spend time on recovery plans once something has happened and we need to do this more in the cyber risk space.”
WorkshoP 4: taLent and risk education
The question of where to go to find the right qualification and training was at the top of the agenda at the workshop focused on talent and
education.moderated by gillian le Cordeur, Chief
executive Officer (CeO) of the institute of Risk management south africa, and David harpur, CeO of the insurance institute of south africa, attendees agreed the choice they make in terms of education is crucial for their future development as risk managers.
mr harpur said: “Risk managers have to choose between local qualifications and those further afield and to decide whether they are prepared to travel. The question is whether those local qualifications will allow risk managers to travel elsewhere and have those qualifications recognised in other countries.”
getting students into companies and giving them a taste of the roles was seen as an important step and something that should continue to be encouraged alongside the development of more formal qualifications. access to continuing professional development was also considered essential for those wanting to gain proper recognition of their value within organisations.
WorkshoP 5: rePutationaL risk
Reputational risk is a concern at both a country level and a company level, according to those around the table for the reputational risk workshop.
moderated by Fulufhelo Tshikhudo, group Risk manager at airports Company south africa, and Dziki nganunu, Chairman of the Botswana insurance institute, the group agreed: “even if your company does everything right, it can still have its reputation damaged because of something that happens at country level.”
mr nganunu added: “For example, the country can suffer a rating downgrade and as a result your rating can be affected. Your reputation can go down and, as a result, investment opportunities can go down too.”
From an insurance perspective, mr nganunu said attendees believed insurance companies are not doing enough to develop their brands and to ensure their reputations are maintained.
he said this is evidenced in the way, among smaller, family-owned operations, children were no longer prepared to follow their parents into the family business because they did not consider insurance a worthwhile career.
Failure to pay claims has been damaging the reputation of insurance across the board, even if it is only a few offenders, he suggested.
social media was also identified as a significant risk and there was debate about how companies can manage that exposure. Delegates agreed having a social media policy in the company was a good idea, with formal guidelines wherever possible.
however, it was agreed it is difficult to manage third-party risks in particular and these needed to be flagged to senior managers.
WorkshoP 6: risk ManageMent as a gLoBaL Profession
Risk managers across africa should be making the most of freely available sources of information, such as the World economic Forum annual
risk report, to keep abreast of changes and trends across the world.
Julia graham, President of the Federation of european Risk management associations, who moderated this workshop, stressed: “Organisations need to be looking at all these types of information when they are considering doing business anywhere, not just in africa.
“They need to pay particular attention to sector and regional reports because it shows how your peers view the sector.”
The pace of change was also highlighted as a risk for those who are not keeping up. ms graham said: “it is also important to remember that african countries have plenty to offer the wider world. some developments in africa are way ahead of elsewhere—it is not all a one-way street.”
Different cultures operate in different ways, which is something for risk managers to bear in mind and can prove to be a hurdle to doing business if those cultural niceties are not observed. a culture of not saying no or being too polite can be just as much of a block as a culture when everyone rushes headlong into things without thinking, for example.
Risk managers at Commercial Risk Africa’s first Risk Frontiers—southern africa event spent the afternoon in a series of workshops, meeting the speakers and learning more of emerging
qualifications across the world. here Liz Booth gives an overview of the afternoon’s events
African risk table talk
‘‘i t iS important to rememBer that one size does not fit all
and that’s just as true for enterprise risk management as it is for everything else...”
Julia grahamFerma President
CONFERENCE6 Workshops
CONFERENCE 7In pictures